Debt Crowdfunding 101

GOAL: To understand the roles performed by a P2P platform and to know the main components involved 

  • Estimated Reading Time: 4 to 5 minutes with video
  • Level: Newbie
  • Prerequisite: None

Debt crowdfunding in a Malaysian context simply means lending money to locally registered companies where monies are pooled from individual citizens, associations, cooperatives, and other companies through a licensed P2P platform.

Components required to make things work

Borrowers

Any one of our one million plus SMEs (Small to Medium Enterprises) are qualified as potential issuers. An “issuer” is the legal term for companies seeking financing. Minimum is from as little as a few thousand to millions of Ringgits. Tenure, anywhere between 1 to 36 months   

Investors

That’s You, me, our friends, uncles, aunties, cousins, colleagues, neighbors, koperasi, associations of all sorts, and even other companies – private or public. Imagine a few million of us with 1000 Ringgit each! That would mean at least a few billion Ringgit to help our struggling SMEs in the Covid economy

Platform

This is a website or mobile app that facilitates the entire process. Its job is to evaluate the borrowers and put the qualified ones onto their platform so that they can be seen and invested by the platform’s registered Investors. 

Other duties they perform is to disburse the funds collected from the investors to the issuers when the crowdfunding is successful, and then, when it’s time to make repayments, send the money (plus interests) back to the investors. 

The platform also initiates recovery services from problematic issuers which could involve things as simple as handling late payment interest to spearheading litigation processes. For its troubles, the platform charges fees from both the investors and borrowers side  

On top of the primary components, the roles played by the regulator is also important. They set forth all the rules of engagements that the platform must follow. In Malaysia, the regulator for crowdfunding activities is the Securities Commission of Malaysia. 

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